HMRC launches IR35 probe into Transport for London contractors

HM Revenue & Customs is probing the IR35 status of limited company contractors at Transport for London (TfL), ContractorUK has learnt.

The tax authority has approached TfL to request that information about its PSC contractor workforce is handed over to officials tasked with enforcing April 2017’s off-payroll rules.

One affected PSC says HMRC seems to be on a ‘fishing expedition,’ which he fears may see TfL become like the NHS – a public body facing a £4.3m tax bill for misapplying the rules.

Other contractors suggest TfL has more in common with GlaxoSmithKline – an organisation which HMRC approached to challenge the IR35 status of 1,500 PSCs, in one fell swoop.

'Surprising'

Formerly of the Revenue, contractor accountant Carolyn Walsh, managing director of CWC Solutions, doesn’t think the comparison to the pharma is sound. She told ContractorUK:

“I wouldn’t say that this is another GSK, because the public sector has had two-and-a-half years to get to grips with the off payroll working rules, and if any public sector body has got it wrong at this late stage, it would be surprising.”

Although the NHS is the obvious exception, TfL is known to have been proactive about the off-payroll rules, given that it was the first engager to ban PSCs (-- a ban it later rescinded).

“If affected TfL contractors have been asked to complete a comprehensive IR35 status check each time they start a contract, they probably do have nothing to worry about,” Walsh says.

“But if they’re asking themselves ‘what status check?’ then any missives received that seek to allay fears of an HMRC investigation heading their way, should be taken with a pinch of salt.”

'No need to be concerned'

Walsh was referring to an email – obtained by ContractorUK – written by Hays to affected TfL contractors, informing them of the HMRC scrutiny but offering reassurance.

“HMRC have asked TfL for [details] about their contractors,” the email says. “Nothing has changed from this [the April 2017 rules], and therefore there is no need for you to be concerned.”

Status expert Kate Cottrell isn’t impressed. “Claims from large and medium-sized businesses that there is currently no need for concern at this time is shocking. 

“Many PSC contractors are facing massive pay cuts [due to private sector IR35 reform]," she said. "And just like large and medium-sized businesses, they need to know the risks they face”.

'Standard IR35 compliance check'

Downplaying those risks, a TfL spokeswoman said: “HMRC are currently conducting a standard IR35 compliance check to ensure TfL’s compliance with the [2017] legislation.

“This follows other similar compliance checks elsewhere in the public sector.”

However, it is these ‘other checks’ in the public sector (and in the private sector too) that do now appear to be more than coincidental, according to IR35 advisory Bauer & Cottrell.

And looked at all together, the advisory believes they must be more than just the result of ‘routine compliance activity’ on HMRC’s part, which is how it has described the GSK probe.

'Disingenuous'

B&C said: “We wonder if HMRC’s claim [in its off-payroll guidance] that they will not investigate contractors retrospectively is actually aimed at end-clients rather than contractors.

“Such a stance would enable end-clients to soften the blow. But it seems a disingenuous claim for those engaged by the NHS, GSK and now TfL. Yes, there’s no retrospection from April 2020, but that does not apply to whatever activities HMRC launch in the meantime.” 

At TfL, one PSC sounds hopeful the claim in his inbox is more than just wishful thinking, as he suspects HMRC will try to deem “every” outside-IR35 PSC “guilty unless proven otherwise.”

But Hays sees it differently, as its email shrugs off the scrutiny, saying: “It is likely that HMRC are trying to satisfy themselves that TfL have met their own obligations under IR35.”

'Burn their IT contractors'

For now, the TfL-Hays contractor is playing along with the ‘business as usual’ characterisation.

“TfL is not going to burn their IT contractors just yet, partly as they already got burnt when the IR35 public sector reforms came in and people left in droves which delayed almost all projects,” he said.

“Both agency and client probably think they are in a stronger position. Let’s hope that they actually are.”

'Legal obligation'

Last week, HMRC declined to comment, when asked if the NHS was the only public sector body to be penalised for incorrect IR35 status decisions. It did so on the grounds of taxpayer confidentiality.

Similarly, Transport for London also declined to comment about what information (such as working practices or contractual details), it is handed HMRC to help its IR35 probe.

Hays, which says in its email that if HMRC request details from a party then that party (TfL in this case) has a “legal obligation” to comply, says that it intends to comment at a later stage.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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